Could a used car be in your future? - Tariff talks might benefit you

It may be a possibility for some car shoppers as they get squeezed by economic factors in coming months, according to a midyear review of the auto industry in Detroit by Cox Automotive.

Although the economy remains strong, with low unemployment, a healthy stock market and solid consumer confidence, finding a new vehicle that fits a need for affordability could be tough, the analysts said.

For example, a flood of off-lease vehicles is expected to peak next year at about 4.1 million, from 2.2 million in 2014, and automakers are no longer targeting the under-$20,000 vehicle segment, meaning that new vehicles have been getting pricier. Wages are going up but not enough to offset other factors such as the increase in gas prices.

For consumers looking for a deal, the options could be enticing. For example, the analysis noted that the average transaction price for a 2018 Toyota RAV4 stood at $31,615, but the estimated retail price on a three-year-old RAV4 with front-wheel drive is $17,950, representing a $13,665 saving for the older vehicle.

In addition, the threat of a trade war and tariffs on imported vehicles could boost the used-car market in the US, according to the review.

That could provide some relief to an industry bracing for the fallout from a potential trade war. Moody's Investors Service predicted last Monday that the auto industry would feel widespread pain should the Trump administration follow through on threats to impose 25 per cent tariffs on imported vehicles and auto parts

Chesbrough noted that making predictions in the current environment is tough, but tariffs affecting such a large part of the market would affect affordability.

"We're going to see prices go up," he said.

For the year, Cox is forecasting a still-strong sales environment, but the firm notes that the auto market remains in its post-peak period. As of June, Cox is forecasting a seasonally adjusted annual rate of 16.8 million vehicles for the year, which represents an increase of 100,000 from earlier figures. Cox says that the number will be at 16.4 million in 2019 and 16.5 million in 2020.

In 2016, the number hit 17.5 million.

The coming headwinds are expected to affect the economy, but timing of a downturn is uncertain, Chesbrough said.